The Role of Business in Advancing Political and Economic Freedom in Africa

This week nearly 50 heads of state will attend President Obama’s U.S.-Africa Leaders Summit in Washington, DC to discuss trade and investment, security, democratic development, and how to achieve a better quality of life for all Africans. The summit will bring together government representatives, business people from the U.S. and Africa, and leaders of civil society groups.

In many ways this summit will be the beginning of a hopefully much larger conversation on how the United States and 54 African countries can increase economic ties, strengthen democratic development, and create new economic opportunities and freedoms for Africans.

To help start this conversation, CIPE and Freedom House brought together several U.S. and African thought leaders to offer their insights on how to advance political and economic freedom in Africa at an event August 1. The purpose of the event was to reinforce the case that good governance and democratic values are closely linked to sustained economic growth, and to offer some actionable ideas on how to strengthen the U.S.-Africa partnership.

The panelists included: Kim Davis, Managing Director and Co-Chairman at Charlesbank, Hon. Donald Gips, Co-Chairman of the U.S. Chamber of Commerce Africa Business Initiative, Betty Maina, Chief Executive of the Kenya Association of Manufacturers (KAM), and Aniket Shah, Global Investment Strategist from Investec.

As Hon. Gips mentioned, many American firms are not even at the “starting line” with regards to expanding their business into Africa. There is no doubt that there are plenty of opportunities and that different countries on the continent are experiencing economic growth and a growing middle class of consumers that offer both African and international companies new opportunities to expand their markets. But for many reasons, few U.S. firms outside of the extractive industries are investing in Africa.

At the same time, Freedom House’s Freedom in the World Index shows that many African countries are not advancing political and economic freedoms, and in some parts of Africa are reversing previous gains. As Betty Maina from KAM pointed out, after the fall of the Berlin Wall there was a great promise “for a better life and democratic opportunity,” but Africans have not built the underlying institutions necessary for democracy to succeed – instead focusing almost solely on conducting elections.

“There is currently a despair about democracy and the fundamental ingredient to change this is the building of proper institutions,” Maina said. As former Ambassador to South Africa, Hon. Gips, put it: “the hard part is what comes after the elections.”

So what can the business community do about the current state of affairs? Kim Davis emphasized that business has a deep interest in the rule of law. African countries need judiciary systems that work and business climates where contracts can be enforced. Keeping the system accountable requires freedom of the press, and African businesses need to push for greater press freedoms.

Perhaps one issue that will not get enough attention during the summit is the “financialization of Africa and how to set up a financial system that works for every business large and small,” according to Aniket Shah. Banking sector reform is a prerequisite for small business growth. According to Kim Davis, without a competitive local banking environment, small businesses will not find the necessary capital they need to grow. Davis also suggested that from the financial perspective, African governments need “strong currencies and fully functioning currency boards.”

Many large cities in the U.S. have a higher GDP than entire countries in Africa. Hon. Gips suggested that Africa now has 54 markets and each market by itself may be too small to attract foreign investment – what is needed is integration across countries. Maina spoke about the existence of regional markets but also pointed out the lack of political will to improve the rule of law and actually implement previously-signed treaties.

Attending the CIPE-Freedom House event was Dr. Joyce Banda, the former President of Malawi (and before that a former CIPE partner), who spoke about the fact that the only way to achieve a higher quality of life was through business and economic opportunity. Banda argued that the only way to achieve improvements in both economic and political freedom was through the existing African leadership. African leaders must focus on freedom of the press, she said, allowing more space for civil society, and on creating a business environment in their countries that encourages outside investment. “Improved governance, reduction in corruption, respect for human rights must occur – otherwise business in (African) countries is not sustainable,” she said.

Both international and African businesses have a role to play in supporting continued economic growth across the continent. The focus of the discussion this week should not only be on the tremendous opportunities in Africa but also what domestic and foreign businesses can do to create better enabling environments, rule of law, and financial institutions that can deliver economic and political freedom for the multitude of entrepreneurs on the continent.